### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ Nos. 15-3589 & 15-3601

U NITED S TATES OF A MERICA , Plaintiff-Appellee

,

v.

A NNA F. N OVAK AND J OHN C. M ORRISON , Defendants-Appellants

.

____________________ Appeals from the United States District Court for the Western District of Wisconsin. No. 14-cr-121 — James D. Peterson , Judge

.

____________________

A RGUED S EPTEMBER 28, 2016

— D ECIDED N OVEMBER 9, 2016

____________________

Before P OSNER , F LAUM , and M ANION , Circuit Judges

. F LAUM , Circuit Judge . Defendants-appellants John Morrison and Anna Novak both pled guilty to distributing a controlled substance analog and to tax fraud. The district court accepted their guilty pleas and later sentenced Morrison to forty-eight months of incarce ration and Novak to ninety-six months. They now appeal, challenging the constitutionality of the Controlled Substances An alogue Act, 21 U.S.C. § 8132 Nos. 15-3589 & 15-3601

(the Analogue Act), the district court’s acceptance of their guilty pleas, and their sentences. We affirm.

I. Background From approximately November 2009 through September 2013, Morrison and Novak sold substances they referred to as “herbal incense” from their reta il store, JC Moon, in Ashland, Wisconsin. These substances included XLR-11, UR-144, PB22, and 5F-PB-22, which at the time were not listed on the controlled substance schedules but were similar to scheduled controlled substances. Between November 2012 and July2013, undercover law enforcement officers made twentyeight controlled purchases of various substances from JC Moon.Through undercover interviews with Novak, the government learned that appellants hid a significant portion of theircash income from the IRS. Novak directed JC Moon employees to take all $50 and $100 bills from the cash registers and put them in Novak and Morriso n’s safe. These bills never went into JC Moon’s business ba nk account. This artificially low business income informatio n was provided to the appellants’ tax preparer; as a result, the “skimmed” cash was not included on the returns and no t reported to the IRS. From 2010 to 2012, appellants under-reported JC Moon’s business income by approximately $575,752 for a tax loss of $186,095. On December 10, 2014, a federal grand jury returned a thirty-five-count indictment against Novak and Morrison. These counts included the Anal ogue Act and tax fraud counts to which Novak and Morrison would eventually plead guilty.Nos. 15-3589 & 15-3601 3

On May 5, 2015, Novak and Morrison moved to dismissthe thirty indictment counts alleging either conspiracy or substantive distribution charges. Appellants argued before the district court that the Analog ue Act was unconstitutionallyvague as applied to XLR-11 and several other analogues involved in the case. On July 24, 2015, the court denied Novak and Morrison’s motion to dismiss. On August 27, 2015, Novak and Morrison pled guilty to one count each of distributing a controlled substance analogue—XLR-11—and to tax fraud. The plea agreements were unconditional and did not reserv e the right to appeal the previously-denied motion to dismiss.At Morrison’s change of plea hearing, the district court reviewed the maximum penalties and asked whether Morrison understood the proceedings. The government then summarized the evidence it would submit at trial on the Analogue Act charge, including employee and customer testimony that appellants sold synthetic marijuana as “herbal incense” froma back room at JC Moon; a Facebook post indicating that appellants sold XLR-11 after they knew it was scheduled to be treated as a controlled substance; * undercover agent testimony regarding a May 2, 2013 XLR-11 purchase; expert testimony demonstrating the physio logical-effects and chemical-

* The May 2, 2013 post read: “The federal government is banning the current herbal incense on May 13, 2013 . What that means for us is everything we are selling right now will be banned as of May 13. Our inventory is limited. We may run out before then. We will keep you posted.” The government said it also would have submitted evidence that XLR-11 was to be officially treated as a controlle d substance on May 16, 2013, but that the notice of this change had been publicized earlier.4 Nos. 15-3589 & 15-3601

structural similarities between XLR-11 and JWH-18, a controlled substance; and lay witness testimony from JC Moon customers regarding the effe cts of XLR-11. Morrison then agreed that the government could have proved all of the above facts. When questioned, both appellants vacillated betweenknowing and not knowing that XLR-11 was similar to controlled substances while they were selling it. When the court first asked Morrison to explain the distribution offense in his own words, he said,I didn’t realize I was being charged with anything because I didn’t think there was anything wrong with [the XLR-11] at the time. Becauseevery time that something came down, we always stopped and ... I didn’t know. I’m sorry. I really didn’t know it was illegal. Morrison then said that he knew that people used the XLR-11 he sold to get high, he “thought it was like marijuana,” and he knew marijuana wa s a controlled substance. However, when questioned furth er, Morrison stated that he did not know that XLR-11 was a controlled substance when he sold it and that he stopped selling it once he believed it became a scheduled controlled substance. In response, the government said that XLR-11 was in fact not a scheduled controlled substance as of the date of the charged offense, May 2, 2013. Rather, the evidence showed that Morrison knew that XLR-11 would be treated as a controlled substance later that same month, yet continued to sell it after having that knowledge. The government continued,Nos. 15-3589 & 15-3601 5

Mr. Morrison’s forthright answers that he knew people were smoking, it means he knew it was for human consumption. He knew they were using it to get high, which we had a lot of proof of that and I knew he wo uld say that, and then his acknowledgement that he thought it waslike marijuana, a Schedule 1 controlled substance, I think is sufficient. One of the things McFadden [ v. United States

, — U.S. —, 135 S. Ct. 2298 (2015)] tells us is youcan prove knowingly ... by showing that the defendant knew the characteristics that would make it illegal even if he did not know its legal status as an analogue.... I would submit ... that there are facts, circumstan tial facts that he knewit produced a high. It could give rise to an inference. The Court could infe r ... that he then knew enough—that it would be an analogue even though he doesn’t know it s legal status as an analogue.

The district court concluded,

I’m satisfied that there’ s a factual basis for theplea, despite Mr. Morrison’s denials of the specific knowledge of the chemical involved or its specific legal status. But I think on the theory that [the government] described that ... Mr. Morrison was familiar with the features of the products that he was selling that made themcontrolled substance analogues, ... there is indeed a factual basis for the plea.6 Nos. 15-3589 & 15-3601

Morrison also initially seemed unsure about how his tax reporting worked. He was not aware of how much money JC Moon made in 2012 or how much business income it reported.He also said the he was unaware of the cash-skimming operation underlying the tax fraud. However, after speaking with his attorney, Morrison said, “We put the fifties and hundreds in the safe as a separate, and ... the taxes were made out the way they were, I signed them and I’m guilty of it.” Morrisonalso said that he and Novak gave their business income information—without including th e $50 and $100 bills—to their tax preparer, and that Morrison signed the return. The court questioned Morrison on his ability to raise lack of knowledge as a defense to the tax fraud charge. Morrison responded that he knew and that he neverthele ss wanted to plead guilty.

The court concluded, despite Mr. Morrison’s denial, I think there is a factual basis ... because of his knowledge of the treatment of the fifties and hundreds at the store, that he knew that the tax return that he signed was not an accurate tax return and that it understated the income ....

The district court conditiona lly accepted Morrison’s guilty pleas pending a review of his presentence report. The district court then proceed ed with Novak’s change of plea hearing. The court reviewed the maximum penalties andensured that Novak understood the proceedings. The government noted that evidence from Morrison’s change of plea hearing applied to Novak. Novak was present at the defense table during that recitation an d waived a proffer of the sameNos. 15-3589 & 15-3601 7

evidence at her hearing, which took place directly after Morrison’s. Novak agreed that the government could prove everything from Morrison’s proffe r. Then, like Morrison, Novakexpressed some hesitation about the distribution charge. Novak initially said she thought XLR-11 was supposed to be tobacco, but then later realized it was not. Novak also stated that she did not know people smoked the substances sold at JC Moon. After speaking with her attorney, Novak said she later learned that people were smoking the herbal incense, but that people were interested in its “relaxing effect.” When asked if she knew that people used the substances to get high, Novak responded, “I don’t like to use that terminology. [I]t affects everybody differently. Some it would relax; some would go to sleep; some would buzz ....” No vak later admitted that JC Moon sold XLR-11 after Novak kn ew it had effects similar to marijuana. When questioned about the May 2, 2013 Facebook post, Novak said she was out of the state and did not create the post but that she was “aware of a date coming up, this particular, and our wholesalers would say [XLR-11] is going to be banned and so we just posted th at instantly, not knowing it was going to come back at us.” The district court then found that there was a sufficient factual basis for accepting Novak’s guilty plea on the distribution charge. Regarding the tax fraud charge, Novak admitted that sheknew the $50 and $100 bills were not reflected in the information she gave to the tax prep arer, and that therefore the tax returns reflected fraudulently low business income. The court found that there was a suffici ent factual basis for Novak’s plea. The court conditionally accepted Novak’s pleas pending8 Nos. 15-3589 & 15-3601

a review of the presentence report. Neither appellant objected to the factual basis for the guilt y pleas or attempted to withdraw the pleas. Novak and Morrison did not orally reserve their rights to appeal the district court’s earlier denial of their motion to dismiss. On November 6, 2015, the district court formally accepted appellants’ guilty pleas and sentenced them. At the hearing, the government called an expert who testified that XLR-11, UR-144, PB-22, and 5F-PB-22 had pharmacological effects substantially similar to THC and were at least as potent as THC. The expert also provided reasons why the substances were not most similar to marijuana. Five lay witnesses, all customers at JC Moon, testifie d to the effects of the substances. The court then found that THC was the closest controlled substance to the substances at issue. THC had a 1:167marijuana equivalency ratio, used to calculate the base offense level under U.S.S.G. § 2D 1.1. The district court applied the 1:167 ratio to the substances in this case. The court sentenced Morrison to forty-eight months in prison on the Analogue Act ch arge and thirty-six months in prison on the tax fraud charge, with the sentences to run concurrently. The court sentenced No vak to ninety-six months in prison on the drug charge and thirty-six months in prison onthe tax charge, with these sentences also running concurrently.

II. Discussion

A. Analogue Act Vagueness ChallengeTypically, we review de novo the district court’s legal conclusions regarding the constitutionality of a statute. United States v. Morris , 821 F.3d 877, 879 (7th Cir. 2016). However, anNos. 15-3589 & 15-3601 9

unconditional guilty plea waives appellate review of all nonjurisdictional pretrial issues. United States v. Adams , 125 F.3d586, 588 (7th Cir. 1997). “An exception exists if the plea is conditioned on preserving specified issues for appeal,” and although “[t]hat conditional plea should be in writing, ... we have held that the conditions ca n also be sufficiently indicated in a transcript of the sentencing hearing.” United States v. Robinson , 20 F.3d 270, 273 (7th Cir. 1994) (citing Fed. R. Crim. P. 11(a)(2); United States v. Yasak , 884 F.2d 996, 999 (7th Cir. 1989)). The threshold question is therefore whether Novak andMorrison’s vagueness challenge alleges jurisdictional, preplea defects that this Court may consider even after an unconditional plea. This Court has sp oken directly on the issue: “While a facial attack on a stat ute’s constitutionality is jurisdictional, an as-applied vagueness challenge is not.” United States v. Phillips , 645 F.3d 859, 863 (7th Cir. 2011). To the extent that appellants make non-jurisd ictional as-applied challenges to the Analogue Act, those arguments are waived. Their guilty pleas did not reserve the right to appeal the district court’s denial of their motion to dismiss, and nothing in the record indicates that they pres erved the issue during the hearings before the district court. To the extent that appellants facially attack the Analogue Act on vagueness grounds, the Supreme Court resolved this issue in the government’s favor in McFadden v. United States , — U.S. —, 135 S. Ct. 2298, 2307 (2015) (holding that the Analog ue Act is not unconstitutionally vague due to its scienter requirement).

B. Guilty Pleas Appellants next say they unknowingly and involuntarily entered their guilty pleas and argue the district court accepted10 Nos. 15-3589 & 15-3601

the pleas without a sufficient fact ual basis. Where, as here, a defendant makes no attempt to withdraw his plea in the district court, we review the claim for plain error. United States v. Pineda-Buenaventura , 622 F.3d 761, 770 (7th Cir. 2010). Likewise, we conduct plain-error review for the sufficiency of a factual basis to support a plea where the defendant failed to make such an objection below. United States v. Arenal , 500 F.3d 634, 637 (7th Cir. 2007).

1. Voluntariness Rule 11 requires that before the court accepts a plea of guilty or nolo contendere the court must address the defendant personally in open court and inform the defendant of, and determine that the defendant understands[,] the nature ofeach charge to which the defendant is pleading.... To determine whether a defendant in fact understands the nature of a charge, we take atotality-of-the-circumstances approach and consider (1) the complexity ofthe charge; (2) the defendant’s intelligence, age, and education; (3) whether the defendant was represented by counsel; (4) the district judge’s inquiry duringthe plea hearing and the defendant’s own statements; and (5) the evidence proffered by the government.

Pineda-Buenaventura , 622 F.3d at 770 (internal citations, quotation marks, brackets, an d alterations omitted).

The balance of these factors leads to the conclusion that Morrison and Novak understood the nature of the chargesNos. 15-3589 & 15-3601 11

against them and that they knowingly and voluntarily entered their guilty pleas. First, while the complexity of Analogue Act charges can be difficult for defendants to grasp, thedistrict court can alleviate this burden through careful questioning and explanation of the charges. See United States v. Fernandez , 205 F.3d 1020, 1026 (7th Cir. 2000); United States v. LeDonne , 21 F.3d 1418, 1423 (7th Cir. 1994). The district court inthis case reviewed the elements of the Analogue Act and Controlled Substances Act with a ppellants and thoroughly questioned each on his or her kn owledge of XLR-11’s effects. Second, Morrison was seventy-one years old at the time of the plea, had served in the Army, and had earned a GED. Hehad been operating businesses like JC Moon around Wisconsin for many years. English is his native language. Though there is some suggestion in the change of plea hearing that Morrison was suffering from the early stages of Alzheimer’s, there is no indication that any such complications impacted his ability to understand the nature of the proceedings. Novakwas fifty-eight years old when she pled guilty. She had graduated high school and had taken some college courses. She ran the operations of JC Moon. Previously, she had managed her own restaurant. English is also Novak’s native language.Nothing about appellants’ personal history indicated that either was unable to understand the proceedings or the nature of the charges. Third, both Novak and Morrison were represented bycounsel. Fourth, as explained above, the district court reviewed the nature of the charg es with each appellant and dwelled on what each knew about XLR-11 and at what time. Finally, the government summarized, in plain language, the expert and lay witness testimony it expected to elicit at trial,12 Nos. 15-3589 & 15-3601

and both appellants agreed that the government could prove all of the facts mentioned. These factors, and the totality of the circumstances surrounding Novak’s and Morrison’s guilty pleas, indicate that they entered into those pleas voluntarily and with sufficient understand ing of the charges against them.

2. Factual Basis Appellants next argue the distri ct court lacked a sufficient factual basis on which to accept their distribution pleas and Morrison’s tax fraud plea. As to the Analogue Act charges, appellants say the government did not proffer, and the district court did not elicit, sufficient evidence of their knowledge about the chemical structure and effects of XLR-11. Alternatively, they contend that if th e court found sufficient evidenceto satisfy the knowledge requirement, it did so by impermissibly relying on a now-disfavored Turcotte inference. See United States v. Turcotte , 405 F.3d 515, 527 (7th Cir. 2005) (creating the “provisional remedy” of a rebuttable, permissive inference of knowledge in Analogue Act cases, such that a defendant knew about the chemical structure of an analogue if the government can show the defendant knew the analoguehad similar physiological effects to those of a controlled substance).The Analogue Act calls for analogues to be treated as controlled substances. 21 U.S.C. § 813. Though this statute does not itself contain any scienter re quirements, courts have interpreted the Analogue Act to incorporate the knowledge requirement from federal laws prohibiting the distribution of scheduled controlled substances. That is, a defendant must have known that the substance in question was a controlledNos. 15-3589 & 15-3601 13

substance or analogue, just as someone who distributes a controlled substance must have known that he was dealing with a controlled substance. McFadden , 135 S. Ct. at 2305 (citing 21 U.S.C. § 841(a)(1)). McFadden sets forth two ways in which the government can satisfy this knowledge requirement:First, [knowledge] can be established by evidence that a defendant knew that the substance with which he was dealing is some controlled substance—that is, one actually listed on the federal drug schedules or treated as such by operation of the Analogue Act—regardless of whether he knew the part icular identity of thesubstance. Second, it can be established by evidence that the defendant knew the specific analogue he was dealing with, even if he did not know its legal status as an analogue.

Id. To satisfy the knowledge requirement the second way, the Supreme Court further reasoned that the government must show that a defendant knew the substance he is charged with distributing had (1) a chemical structure substantially similar to that of an already-scheduled controlled substance and (2) a physiological effect substantially similar to or greater than the effect of an already-scheduled controlled substance. Id. Appellants are correct that after McFadden , courts can no longer rely on the Turcotte inference to demonstrate a defendant’s chemical-structure and physiological-effects knowledge. Turcotte effectively collapsed the second requirement (that the defendant know the analogue had physiological effects simi-14 Nos. 15-3589 & 15-3601

lar to those of a controlled substance) into the first requirement (that the defendant know that the analogue had a chemical structure substantially similar to that of a controlled substance) in a way that is unsupported by McFadden ’s reasoning.However, the government may still prove either through circumstantial evidence. McFadden , 135 S. Ct. at 2304, n.1 (“Circumstantial evidence could include, for example, a defendant’s concealment of his activiti es, evasive behavior with respect to law enforcement, knowledge that a particular substance produces a ‘high’ similar to that produced by controlled substances, and knowledge that a particular substance is subject to seizure at customs.”); id. at 2306, n.3.In the case at hand, considering the government’s proffer—which both appellants admitted could be proven at trial—and appellants’ admissions at the change of plea hearings, the district court had suffi cient circumstantial evidence to satisfy the first McFadden knowledge requirement: appellants knew the substance in question was a controlled substance or analogue. As explained above, the parties agreed the governmentcould prove at trial that appellants sold XLR-11 as “herbal incense” from the back of their store, JC Moon. While selling it,appellants learned from customers and employees that XLR11 would give users a high. Novak admitted that she knew XLR-11 got people buzzed, and Morrison believed it was like marijuana. In other words, appellants knew XLR-11 was not meant to be used as incense; rather, they knew it was for smoking and that it would give a buzz or high similar to marijuana. Most tellingly, JC Moon’s May 2, 2013 Facebook post said, “The federal government is banning the current herbal incense on May 13, 2013. What that means for us is everythingNos. 15-3589 & 15-3601 15

we are selling right now will be banned as of May 13. Our inventory is limited. We may run out before then. We will keep you posted.” Appellants knew XLR-11 was going to be treated as a controlled substance, yet they continued to sell it. In sum, there was enough evidence before the district court to find that appellants were aware of the specific analogue theywere dealing with and its status as a controlled substance analogue. The court committed no plain error in concluding thatit had a sufficient factual basis to accept Novak’s and Morrison’s guilty pleas on the Analogue Act charges.

The district court likewise had a sufficient factual basis on which to accept Morrison’s guilty plea for tax fraud. Morrison initially hesitated to admit he knew about the cash-skimming scheme; however, he later admitted to knowing that the $50 and $100 bills went into his and Novak’s safe, that the taxes were prepared without including income from the skimmed bills, and that he knowingly sign ed off on the artificially lowtax returns. Furthermore, the district court informed Morrison that not knowing the submitted tax information was false would be a defense to the tax fraud charge. Morrison still pledguilty. Thus, the district court did not err in accepting Morrison’s plea to the tax fraud charge.

C. 1:167 Marijuana Equivalency Ratio Finally, appellants argue the district court erred in finding that THC was the most closely related controlled substance toXLR-11, UR-144, PB-22, and 5F-PB-22 for purposes of calculating the offense level under U.S.S.G. § 2D1.1 cmt. n.6. The district court’s conclusion that THC is the most closely related controlled substance to XLR- 11, UR-144, PB-22, and 5F-PB-22 is a finding of fact we review for clear error. United States v.16 Nos. 15-3589 & 15-3601

Malone , 828 F.3d 331, 337 (5th Cir. 2016) (collecting cases); United States v. Hall , 101 F.3d 1174, 1176 (7th Cir. 1996).

Where a substance, such as XLR-11, is not listed in the Sentencing Guidelines, the Guidelin es require application of the marijuana equivalent of the most closely related controlled substance. U.S.S.G. § 2D1.1 cmt. n.6. To make this finding, the Guidelines instruct the district court to consider (1) whether the unlisted substance has a chemical structure substantiallysimilar to that of a controlled substance listed in the Guidelines; (2) whether the unlisted substance produces a pharmacological effect that is substantially similar to the effect produced by a controlled substance in the Guidelines; and (3) whether a lesser or greater amount of the unlisted substanceis required to produce a pharmacological effect that is substantially similar to the effect produced by a controlled substance in the Guidelines. Id. The government conceded at sentencing that none of theanalogues involved in this case had a chemical structure similar to any controlled substance referenced in the Guidelines. The district court acknowledged that this factor was of no help in finding the most closely-related controlled substance for XLR-11. However, missing the first factor does not end the analysis. The government produced evidence on the latter two factors. At sentencing, the government called an expert witness and lay witnesses who testified that the substances had similar or stronger physiolo gical effects to those of THC. The expert also elaborated on why the substances were like THC, and not like marijuana, which contains THC as one of its many chemicals. The expert also opined that less of the substances was needed to prod uce an effect compared to a given amount of THC. The district court was entitled to creditNos. 15-3589 & 15-3601 17

that testimony and use it to find that the substances were most like THC. It follows that the di strict court did not err in applying the 1:167 marijuana equivalency ratio for THC to the substances involved in this case , or in calculating appellants’ offense levels accordingly.

III. Conclusion For the foregoing reasons, we A FFIRM the judgment of the district court.